Requires almost all leases to appear on the balance sheet as an asset and a liability, bringing hidden obligations into the open.
What changes on your financial position
Right-of-use asset
When you sign a lease, you record an asset representing your right to use that item – office, vehicle, equipment. It is depreciated over the lease term.
Lease liability
The present value of all future lease payments, recorded as a financial obligation. Interest expense is recognised separately each period.
Practical exemptions
- Short-term leases — 12 months or less
- Low-value assets — e.g. laptops, small office equipment
Putting leases on financial position increases reported debt, which can affect loan covenants and credit ratings. Review your leasing agreements now.
